Glossary

Replenishment is defined as “the deliberate process of ordering inventory using efficient practices that optimize Service Level and Inventory Turnover” .

-80/20 Rule. See Paretto’s Law.

-ABC Class Code. A system of grouping parts by common management scheme. -Anticipation Inventory. Inventory that is built or created in anticipation of future sales. Sometimes referred to as “just in case” inventory. -APU. See Average Period Usage. -Average Period Usage. Actual demand averaged on a per period basis, with the number of periods defined by the analyst. Also known as “APU” . -Back Order. A portion of a sales order or a purchase order that is created when a portion of such order ships and a balance of parts due is leftover. -Back Order Basis. A method of measuring Service Level that calculates fill rate based on complete lines shipped against lines ordered. -Bell Curve. The graphical shape of a normal statistical distribution of numbers. Such graph looks like a bell when plotted. -Business Cycle. A charted pattern of business activity, usually measured in output or gross domestic product (GDP) that accounts for the economic production of a country or national economy. Business activity tends to “cycle” up and down based on private investment, government spending, and monetary policy. -BOL (Bill of Lading). A transfer document written by a carrier to a buyer and seller that sets forth the carrier’s responsibility for the goods. -Broker. A paid agent who facilitates the transportation and clearance of goods through United States Customs.

-Brokerage Fees. Fees and charges assessed by a broker that are associated with the processing of a shipment, with the broker serving as agent for the customer. -Buy Increment. A calculated Conversion value. Equal to the minimum of a determined box quantity or a supplier’s order minimum at the item level. -Buying. The process of determining purchase quantities for items that will be bought.

-Capacity Constraint. A condition such that the available supply of production capacity is less than the demand for such production. -Carrier ID. A setting that displays a desired carrier and freight method for a shipment based on the Supplier. -Carrying Cost. The cost of owning inventory. It is the actual Landed Cost of the inventory, plus the Cost of Capital. -CIF (Costs, Insurance, Freight). Freight term in which the seller pays for carriage and freight to the named destination, as in “CIF Kansas City” . -COD (Collect on Delivery). Freight cost and parts cost is collected at the time of delivery, at the dock. -Collect. Freight term that means that the freight costs are “collected” by the carrier from the customer (at the destination). -Configuration. The process of building a purchase order that is cost effective and meets objectives for inventory turnover and Item Cost management. -Consolidation Date. The date parts are required to ship from the supplier’s facility. -Conversion. A system setting that consists of assigning a buy-quantity value to an item. The system will automatically round Order Quantity to the Conversion value in purchase order and sales order entry. -Cost. The value at which goods or services are purchased. -Cost List. See Cost Page. -Cost of Capital. The cost of money to a given organization or company. It is usually the higher of the borrowing rate of the firm or the firm’s return on assets. -Cost Page. A Cost List that is established in P21 that assigns costs in purchase order entry based on Supplier and quantity. Also known as a Cost List. -Cost to Order. See Ordering Cost. -Critical Shortage. A condition created when Net Stock, expressed in days, is less than the Lead Time of a part. -Currency Conversion. The process of converting non-dollar denominated contracts, to a common dollar value, based on exchange rate guidelines and system parameters. -Customer Requirement. A condition created when Net Stock is negative, and a customer who wants parts is waiting, and such parts are not available.

-Customer Service Measure. The term used to refer to Service Level in the P21 enterprise software. -CWT (Hundredweight). Refers to LTL shipments and a LTL program from UPS. -Daily Fill Report. A report run from the supplemental database that lists items received in a given day that have open sales orders dated later. The report can be used to allocate and fill sales orders on an “as stock is available” basis, and to allocate inventory that is in short supply among several sales orders based on priority. -Days Early. The number of days allowed for a shipment to arrive prior to the Required Date before it is counted as early by the system. -Days Late. The number of days allowed for a shipment to arrive after the Required Date before it is counted as late by the system. -Default. A condition for a system variable such that the variable assigned as a default, automatically appears first in any field that needs population in a form, document, or processing action. -Default Carrier ID. Numerical codes that are assigned to a carrier and method, and which are “preassigned” to suppliers for auto-population at Purchase Order entry. -Demand Forecasting. A process of predicting future sales and usage by surveying customers, reviewing market data, and accounting for variables that affect the use or demand of a product or service.

-Demand Planning Horizon. The time period for which demand planning is conducted. Generally the greater the time period and the more distant into the future, the lesser the accuracy. -Demand Pull. A production system in which inventory is created when needed, as opposed to a push system where anticipation inventory is created in advance of demand. -Document Links. Not to be confused with “Linking” . A technology feature that “hooks” supporting documents, such as a blueprint or specifications, to an SKU electronically, such that the document can be submitted to a recipient coincidental to a transaction. -Duties. A tax or tariff that is assessed on goods based on the HTS number. -DynaChange. A technology process in P21 that allows the custom alteration of screen content, placement, and Required Fields assignment. -Dynamic Cost. An operating framework where the Item Cost is determined by the purchase quantity. Dynamic Cost can be managed automatically with a Cost Page. -Economic Order Value. The value in dollars or weight that optimizes cost and inventory carrying cost objectives.

-Economic Purchase Order Calculator. A table that assists an analyst in determining optimal and minimum purchase order values. May be expressed in value or weight. -EOQ (Economic Order Quantity). An Independent Ordering System where Order Point and Order Quantity are calculated based on dynamic variables. -ERP (Enterprise Resource Planning). A system that uses a technology platform such that all functional areas of an organization are able to communicate and collaboratively plan resource requirements in real time; and from that to develop resource allocation decisions in an efficient and “common language” framework, absent of numerous manual processes. -Evaluation. The process of reviewing parts that are recommended for reorder, and deciding if such reorder is a desirable action.

-Expected Date. The date that parts are expected to be available for sale. -Exposures to Stockout. The risk of stockout associated with frequency of replenishment. An “exposure” is a replenishment action. The more actions in a period of time, the lesser the inventory required, but the greater of stockout risk. -EXW (Ex Works). The Seller simply makes goods available at its dock.

-FAX (Facsimile). A copy of an original document. -FCL. A freight term that means “Full Container Load” , which is a maximum of 40,000 pounds, including packing material and the container itself. -Fluctuation Inventory. Inventory that is held to cover random changes in supply or demand. A manufacturer of portable power generators might hold extra stock to cover unforeseen demand from ice storms.

-FOB (Free on Board). Freight costs are accrued to the buyer from the supplier’s dock. -Freight Forwarder. An agency or transportation company that usually takes possession of goods for purposes of consolidating multiple shipments from different suppliers within a geographic cluster into a single container. -Gross Margin. Also known as “Gross Profit Margin” . Is a percentage calculation taken by dividing Gross Profit into Sales.

-Gross Profit. Sales less Cost. Usually expressed in dollars. -Handoff. A business process, typically manual, which requires deliberate cause and affect decisions from the originator to the recipient. Handoffs often slow processes and can create extra processing (and therefore inventory) because they are often batch processed, as opposed to continuously processed.

-Hedge Inventory. Inventory that is held in anticipation of changing prices. By holding inventory, the user has a definitive cost of doing business in the future. -Hoard Inventory. Inventory accumulated in advance of rising prices. If a Kansas farmer has 1,000 bushels of wheat in his combine, and wheat is $4.00 per bushel, but the farmer hears of a bad storm system in Oklahoma that might destroy the wheat crop there, the farmer will store the wheat rather than selling it, in anticipation of higher prices. -HTS (Harmonized Tariff Schedule). A numbering system assigned by the United States International Trade Commission that is based on part type and style so that there is uniformity in customs and duty enforcement.

-IMI (Item Master Inquiry). A screen view of a given SKU whereby using tab queries, virtually any procurement attribute or stock status component can be viewed for analysis. -Incentive. An economic condition created to stimulate a particular behavior, as in “to incent” . A typical incentive is free freight for a purchase order if the value exceeds a target weight or value. -Independent Ordering System. An inventory replenishment system that is managed independent of demand.

-Integrated Supply. An inventory management system that uses the principles of demand pull such that inventory is made available on a “Just In Time” (JIT) basis. The advantages of integrated supply are lower inventory, less warehouse space, and fewer warehouse assets. Such capital can be deployed by the user into other assets, such as more production equipment. -Inventory. An asset that is used to decouple supply and demand, so that supply and demand can be managed as independent functions. -Inventory Control. The process of managing inventory and decisions such that investment returns from inventory are optimized. -Inventory Ranking. A process of evaluating inventory by common denominators and then assigning such common groups “ranks” for purposes of managing, such as in assigning ABC Class Codes. -Invoice Cost. The price charged for a good or service. For inventory, this cost is also referred to as Item Cost. This cost is most often the value listed on a Purchase Order at the item level.

-Item Cost. See Invoice Cost.

-Kurtosis. The statistical concept that measures the width and height of the bell shape, in a Bell Curve.

-Laid In Cost. See Landed Cost.

-Landed Cost. Invoice Cost plus the cost of procurement. Procurement costs, also known as “soft costs” , include freight, duties, brokerage fees, insurance, and other direct procurement costs.

-LCL. A freight term referring to “Less than Container Load” . A freight shipment that has a gross weight of less than 40,000 pounds. -Lead Time. The amount of time, in days, from when a part is ordered, to when a part is received and available for sale.

-Lead Time Factor. A supplier-level variable that is imposed based on temporary or seasonal changes in the supplier’s operation which alters Lead Time accordingly. -Linking. A technique to ensure that specific stock is allotted from specific purchase orders to specific sales orders.

-LIPPS Report (Late Item Purchased Parts). Report used to identify problems in Service Level and order fill when a purchase order date is changed at an item level, or greater. -Look Ahead Days. A P21 setting that instructs the system to review open sales orders and purchase orders into the future that is equal to the number of days established. The setting does NOT consider forecasted usage. Only open Sales Orders and Purchase Orders are considered. -Lost Opportunity Cost. A cost, usually expressed based on a comparative return on investment, which considers the investment in a given asset, if invested in a different asset. For example, if you have money invested in inventory, but you could instead have invested in real estate or stock, the Lost Opportunity Cost would be the difference between the return on investment in real estate as opposed to inventory. Lost Opportunity Cost is a test often used to ensure that resources are being deployed to their highest and best use. -Lot-Size Inventory. Inventory that is created by production lot sizes. If a package of hot dogs contains 12 hot dogs, and a bag of hot dog buns contains 8 buns, four hot dogs of lot-size inventory will be created because of the differences in lot size at the meat packing plant versus the bakery. -LTL (Less than Truck-Load). A freight term for shipments greater than 70 pounds but less than truck load, such that the goods are shipped by common carrier truck line. -Mandatory Note. A note that pops up in IMI automatically for reference by a user. Mandatory Notes are usually warnings, as opposed to references for users (see Non-Mandatory Notes). -MAPE% (Mean Absolute Percent Error). This is a running historical error rate based on the last completed demand period in the system. The error rate is equal to the deviation in forecast (system generated) and actual demand. Consider it a forecast accuracy rating. -Mean. Commonly referred to as “average” , is the sum of a list of numbers, divided by the number of items in the list. The Greek letter µ (mew) signifies mean. -Median. The number separating the higher half of a sample, from the lower half. It is denoted herein by the symbol Ў.

-MIN/MAX. Independent Ordering System in which Order Point is a fixed value (MIN) and the Order Quantity is equal to the number of items required to move inventory level back to a fixed level (MAX). 89

In MIN/MAX, Order Quantity is equal to MAX minus Net Stock.

-Model Cost. An estimated Standard Cost for a given item based on other similar items. Model Cost is used for lightly traded items, where the effort to maintain or procure such cost is deemed prohibitive, and experience suggests that a cost estimate is accurate to management’s satisfaction. -Net Stock. Inventory calculation that is equal to Inventory + Purchase Orders – Sales Orders. -Non-Mandatory Note. A note that rests in the “Notes” tab of IMI, for reference by users in making decisions.

-Not Sourced. A status assigned to an item by populating the Primary Supplier field. “Not Sourced” refers to standard items that do not have an established Standard Cost, but which may have a predictable cost based on experience and market information. -Obsolescence. A condition when a product is no longer in common use, or which useful life has expired. -On Hand. The amount of inventory in the warehouse at any given time. On Hand does not recognize items in purchase orders or allocations. -OP. See Order Point.

-OP/OQ (Order Point/Order Quantity). An Independent Ordering System in which there is a fixed Order Point and a fixed Order Quantity. Order Point and Order Quantity are often a multiple of production lot size or customer order quantity. -Open Purchase Order Report. A report that lists all open items and orders that is used to audit, manage, and account for purchase order contracts in the system. -OQ. See Order Quantity. -Order Acknowledgment. The process of a recipient of an order replying back to the sender, while noting agreement or disagreement of any terms and conditions. An order is not a perfected contract until either after acknowledgement or shipment. -Order Execution. The development of an actual purchase order and the transmission of said order to a supplier. -Order Management. A process of communicating proper performance and delivery expectations between suppliers and users, such that information in the system is accurate, timely, and complete. Also includes an arbitration process of affecting changes to meet the need of users and customers. -Order Point (OP). The stock level at which a purchase order should be created. -Order Quantity (OQ). The number of items to be ordered on purchase orders when on-hand stock is less than Order Point (OP).

-Ordering Cost. The cost associated with procuring a purchase order. It includes review costs; issuance and acknowledgement costs; receiving costs; inspection costs; and putaway costs. It is the direct labor in Purchasing and Warehouse operations associated with procuring an order. -Pack List. A listing by the seller of goods for what items are contained in a given shipment. -Packaging Costs. Costs allocated to an item for repacking, relabeling, or in some way modifying boxes received to integrate with boxes shipped in a distribution scheme. -Paretto’s Law. A theory proposed by Italian economist, Vilfredo Paretto, that suggests that 80% of business activity is generated by 20% of the elements; and 20% of activity is generated by 80% of the elements. Also known as the “80/20 Rule” .

-Payment Terms. The terms that a supplier requires for payment of goods. This is a separate and distinct concept from freight terms. -Pick Size Forecasting. The processes of predicting future pick size. Often used to establish Order Point and Order Quantity so that replenishment is completed in pick size increments, thus eliminating Lot Size Inventory. -PORG (Purchase Order Requirements Generation). A P21 process whereby the system calculates items that are below Order Point, or for which there is no apparent available stock, for purchase or review based on Purchase Criteria.

-Potential Inventory Turnover. The theoretical turns realized in the present replenishment system, if fully compliant. Equal to Theoretical Inventory Value divided into annual Cost of Goods Sold. -Prepaid. Freight terms in which the supplier pays freight to the customer’s dock. -Prepaid and Add. Freight term meaning that supplier pays freight and bills the customer for the cost.

-Price. The value that a customer pays for goods or services. It is the value at which parts are sold.

-Price List. See Pricing Page. -Pricing Page. A Price List that is established in a table in P21 that assigns prices to sale quantities based on customer and quantity. Also known as a Price List. -Pro Forma Invoice. An invoice that is created and presented for orders that require some sort of prepayment. -Processing Time Inventory. Inventory that is held to cover processing time. If you use 100 parts per day, and you expend one day to order parts and one day to receive in parts, then 200 parts must be held in stock to cover the processing time to procure new stock.

-PTV. See Purchase Target Value. -Purchase Criteria. A setting that groups items by a common denominator or denominators for PORG calculation.

-Purchase Order. An offer to purchase to a supplier, that when accepted, becomes a binding contract between the parties.

-Purchase Order Calculator. See Economic Purchase Order Calculator.

-Purchase Price Page. See Cost Page. -Purchase Stock Card. A display in P21 that summarizes the Order Point status for a given item. It allows an analyst to view the OP calculus and Net Stock of the item. -Purchase Target Value. A value, expressed in either weight or quantity, at the Supplier level, that provides visibility to a buyer in purchase order entry of a desired purchase order value. Also known as “PTV” .

-Quantity Available. Shown in P21 as “Qty Available” , which is the amount of goods “available” for sale (in the warehouse, less open sales orders that are due now, PLUS prepaid invoices). -Real Time. A technology concept whereby business processes and transactions are completed and made visible to all users as they occur, simultaneously. -Recognition. The process of proposing parts that MIGHT be in need of replenishment, based on reorder point. -Reorder Point. See Order Point.

-Required Date. The date that parts are required to be on our dock from a supplier. -Return on Assets. Net Income divided by Average Total Assets. ROA is a measurement of a company’s financial return of the money it has invested in its assets. -Return on Inventory Investment. Also known as “ROII” , calculated by dividing the annual gross profit into the investment. Measures the return on investment of inventory. -Review Cycle. The time in days that economic purchase orders can be accumulated for a supplier under normal circumstances.

-RFQ (Request for Quote). A solicitation request to a supplier to quote parts with prices, terms, and availability. -Risk Costs. The cost associated with inventory from damage, spoilage, waste, or obsolescence.

-ROII. See Return on Inventory Investment.

-ROAI (Return on Added Investment). A calculation used to determine if hoarding decisions are wise. Calculation is made based on settings established in the PORG “Factor” tab. -Safety Factor. A mathematical calculation of proportionate inventory requirements to realize a given Service Level, based on the number of standard deviations provided as safety stock. -Safety Stock. Inventory that is held to reduce stockout risk from unforeseen changes in demand or supply. Similar to Fluctuation Inventory. -Safety Stock Factor. A multiplier that allows Safety Stock days to be altered based on the velocity and importance of a particular item. -Sales Order. An acceptance of an offer to buy (purchase order) from a customer, that when accepted, becomes a binding contract. -Scheduled Order. Also known as a “scheduled release”. Refers to a Purchase Order or Sales Order that is intentionally scheduled to ship in multiple dispatches. -Service Level. The fill rate percentage of line items sold. Service Level can be expressed on a stockout basis (a partial line filled is counted toward Service Level); or a back-order basis (a line must be filled completely to count toward Service Level). -Skew. The statistical concept that refers to data distribution when data points cause the tails of a Bell Curve to swing out. -SKU (Stock Keeping Unit). A unique part number that possesses unique attributes in an inventory control system that is identifiable. -Soft Cost. Non-product, non-invoiced direct costs associated with a given item. Such costs include freight, duties, and other fees and expenses associated with shipping parts to our dock. -Soft Cost Management Tool. A data-driven supplemental tool designed and built by G.L. Huyett engineers that collects soft costs from purchase orders received and allows analysis and summation of such costs at the supplier and product line level. Used in making Landed Cost calculations. -Source Note. A special Non-Mandatory Note that specifically provides sourcing information to a user. -Source Reference Field. A data field primarily used in the Cost tab of IMI, that displays sourcing information to users for the purpose of negotiating cost with the approved supplier, or for identifying potential suppliers of un-sourced items. -Standard Cost. A cost that is populated into P21 that is a pre-negotiated cost from a supplier based on negotiation, a quote, or a Supplier’s Price List. Standard Cost will auto-populate into purchase order entry with proper system settings.

-Standard Deviation. A statistical concept that measures the variability of a group of values. In simple terms, it is the measurement of the variation of numbers from their mean. A low standard deviation suggests that the numbers are all closely grouped (and more predictable), where a high standard deviation suggests that numbers are spread out over a wide range of values. -Stockout. An inventory condition created when an order is received and there is not stock to fill the order on the desired date due.

-Stockout Basis. A method of measuring Service Level that calculates fill rate based on partial lines shipped against lines ordered. -Stockout Cost. Organizational costs associated with lost sales, backorder issuances, and expedited fees when inventory is not available when needed. -Storage Costs. The costs in real estate, warehouse storage, and warehouse transportation for having inventory. -Structurally Created Inventory. Inventory that is held by an organization due to the organization’s own inefficient processes. The inventory is usually created by processes that are wrong (the process yields errors in judgment by decision makers) or from processing time (the organization is slow to respond to changes in supply and demand). -System Management Costs. Costs incurred from the investment of time and resources into reviewing and modifying system settings to ensure accurate results. -Theoretical Inventory Value. The hypothetical value of inventory if the replenishment system has full compliance. It is the value “in theory” of inventory on hand. Equal to one half of Order Point plus Order Quantity. -TIV. See “Theoretical Inventory Value” . -Transaction Costs. Costs incurred to process a transaction. In replenishment, such costs might include buyer time, receiver time, putaway time, Accounts payable time, and freight costs. Such costs are normally fixed to a pallet level (Transaction costs are the same to process a box or pallet of the same goods). -Transaction Created Inventory. Inventory that is created and held as a result of inefficient or incorrect order points and order quantities in a replenishment system. -Transportation Costs. Costs in freight and handling to ship parts to our dock. Transportation costs do not include duties or other nonshipping costs associated with soft costs. -Transportation Inventory. Inventory that is held to cover transportation time between producer and distributor, or producer and consumer. If the milk man only stops once per week, and the household uses a gallon of milk per day, six gallons of transportation inventory will be held in stock on the first day, and as depleted, will result in no stock on the last day. Average inventory would be three gallons for the week, which is equal to Transportation Inventory.

-Turnover. Also known as “turns” or “inventory turnover” . Calculated by taking annualized sales in units or value, and dividing into average on hand inventory. -Turns and Earns. A financial calculation consisting of multiplying Gross Margin by Inventory Turnover. The calculation links the Balance Sheet to the Operating Statement and provides an analyst a comparative result for management purposes. -Up To. An Independent Ordering System where Order Point is calculated using dynamic data, and Order Quantity is calculated based on a maximum on-hand value, often expressed as a multiple of APU. The order quantity is sometimes referred to as Period Order Quantity. -Usage Factor. A multiplier used in Op and OQ calculations in the EOQ replenishment method that allows for calibration of Average Period Usage based on forecasted changes in demand. By adjusting the Usage Factor from 1.0, a direct multiplier effect is made on APU. The Usage Factor may be set from 0.0 to 2.0.

-UPS. A freight term that is the abbreviation for “United Parcel Service” . By attaching a service level code (“NDA” or “Red” for “Next Day Air”; “Blue” for “Second Day Air”; “Orange” for three day guaranteed), specific instructions can be provided. -Vessel Tracking. A P21 feature that allows multiple purchase orders to be grouped together and managed as “vessels” in the system. Allows for container building from multiple suppliers with multiple purchase orders. -VMI (Vendor Managed Inventory). This is the trade reference and sales jargon for integrated supply management. -Yield Management. The process of using system variables, reporting, and analysis so as to properly balance high inventory turnover against high service level.